UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

or

CQENS Technologies Inc.

(Exact name of registrant as specified in its charter)

(612) 812-2037

(Registrant’s telephone number, including area code)

not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 25,123,45825,397,685 shares of common stock are issued and outstanding as of May 4,November 20, 2020.

TABLE OF CONTENTS

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements, Part 1. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed on April 10, 2020 (the “2019 10-K”) and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “CQENS,” “we,” “our,” “us,” and similar terms refers to CQENS Technologies Inc., a Delaware corporation formerly known as VapAria Corporation and, where applicable, VapAria Solutions Inc., a Minnesota corporation (“VapAria Solutions”), a wholly owned subsidiary of CQENS. In 2019 we dissolved VapAria Solutions which had no separate operations, assets or liabilities. In addition, “first“third quarter of 2020” refers to the three months ended March 31,September 30, 2020, “first“third quarter of 2019” refers to the three months ended March 31,September 30, 2019, “2019” refers to the year ended December 31, 2019, and “2020” refers to the year ending December 31, 2020. The information which appears on our web site atwww.cqens.com is not part of this report.

All share and per share information appearing in this report gives pro forma effect to the one for seven (1:7) reverse stock split of our outstanding common stock on December 26, 2019.

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

CQENS Technologies Inc.

Balance Sheets

See accompanying notes to unaudited financial statements

CQENS Technologies Inc.

Statements of Operations

(Unaudited)

See accompanying notes to unaudited financial statements

CQENS Technologies Inc

Statementsof Changes in Stockholders’ Equity (Deficit)

For the three months ended March 31, 2020 and 2019

(Unaudited)

See accompanying notes to unaudited financial statements

CQENS Technologies Inc.

Statements of Changes in Stockholders’ Equity (Deficit)

For the three and nine months ended September 30, 2020 and 2019

(Unaudited)

See accompanying notes to unaudited financial statements

CQENS Technologies Inc.

Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited financial statements

CQENS Technologies Inc.

(Formerly VapAria Corporation)

Notes to Unaudited Financial Statements

March 31,September 30, 2020

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION

Nature of Business

CQENS Technologies Inc., formerly VapAria Corporation (“we”, “our”, “CQENS”, the “Company”, “CQENS”) was incorporated under the laws of the State of Delaware on December 21, 2009 originally under the name OICco Acquisition IV, Inc.

CQENS Technologies, Inc. is a technology company with a proprietary method of heating plant-based consumable formulations that produce an aerosol that lead to the effective and efficient inhalation of the plant’s constituents. This is accomplished at a high temperature but without the accompanying constituents of combustion. Our system of heating is a high temperature, non-combustion system. Our Heat-not-Burn Tobacco Product (HTP) system is a patent-pending method of heating plant-based consumables for inhalation that is superior to other methods of ingestion, smoking, vaping, swallowing or via topical application.

In the first quarternine months of 2020 the effects of the COVID-19 pandemic began to be felt.were felt by the Company. While the duration and full impact of the pandemic is unknown at this time, we expect that the pandemic will continue to adversely impact CQENS in several ways. Our business model is dependent upon our ability to enter into strategic partnerships in the future, including alliances with consumer product companies, to enhance and accelerate the development and commercialization of our proposed products. We will also be dependent upon third party manufacturers to produce our proposed products, as well as third party marketing and distribution companies. We believe that our business opportunities are international in nature and include potential partnerships in the UK, the EU and Asia, including the People’s Republic of China. The worldwide pandemic caused by COVID-19 could causehave caused certain of these opportunities to be delayed or significantly limited in their scope shoulddelayed. Should the pandemic continue and /or be prolonged into 2021.2021 certain of these opportunities might be limited or lost. We also need to raise additional working capital to provide sufficient funding to bring our proposed products to market. The adverse impact of COVID-19 on the capital markets will make it more difficult for small, pre-revenue companies such as ours to access capital. We will continue to assess the impact of the COVID-19 pandemic on our company, however, at this time we are unable to predict all possible impacts on our company, our operations and our prospects.

The Company has limited operations and, while our executive officers devote a substantial amount of their time to the Company, with limited cash compensation, as of March 31, 2020, had no employees.

The Company has a fiscal year end of December 31.

Basis of Presentation

Basis of Presentation - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of March 31,September 30, 2020 have been made.

Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended December 31, 2019 audited financial statements.appearing in its 2019 10-K. The results of operations for the periodperiods ended March 31,September 30, 2020 are not necessarily indicative of the operating results for the full year.

Reclassifications– Certain reclassifications may have been made to our prior year’s consolidated financial statements to conform to current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

Recent Accounting Pronouncements– Management has evaluated recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our financial statements and related disclosures.

NOTE 2 – GOING CONCERN

The Company’s financial statements are prepared in accordance with GAAPU.S. generally accepted accounting principles (“GAAP”) applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently,At September 30, the Company has recurring losses, and although has cash in excess of one million dollars, with renewed research and development efforts and with no source of revenue sufficient to cover its operations costs over the next 12 months these may not allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will be dependent upon the raising of additional capital. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

NOTE 3 – STOCKHOLDERS’ EQUITY

On January 29, 2020 we sold 248,448 shares of our common stock for $1,200,000 to a non-U.S. Person in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.

On March 6, 2020, the holder of the $50,000 note that was entered into on May 30, 2013 agreed to convert the principal and accrued unpaid interest totalingtotalling $76,917 into shares of CQENS common stock at $5.00 per share. A total of 15,384 shares were issued as satisfaction of this note.

On April 13, 2020 we entered into a consulting engagement memorandum with an unrelated third party pursuant to which we engaged this party to identify key Asian resources for our company. As compensation for the services we issued this individual 12,423 shares of our common stock valued at $62,115. The recipient was a non-U.S. person.

On April 16, 2020 we entered into a consulting engagement memorandum and agreement with an unrelated third party and engaged this individual to provide certain services to us in connection with the further development of certain of our patents. As compensation, upon execution, we issued this individual 10,000 shares of our common stock valued at $50,000 and are obligated to issue him an additional 10,000 shares at such time as additional patents are issued. The recipient was a non-U.S. person.

On June 1, 2020 we sold a total of 82,818 shares of our common stock for $400,000 to six non-U.S. Persons in private transactions. We did not pay a commission or finder’s fee and are using proceeds for working capital.

On June 4, 2020 we sold 165,632 shares of our common stock for $800,000 to a non-U.S. Person in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.

On June 17, 2020, the Company entered into a Stock Purchase Agreement with an unrelated stockholder pursuant to which it agreed to repurchase 21,430 shares of its common stock from the stockholder for $2,500. The Stock Purchase Agreement contained customary terms, including cross general releases. On August 10, 2020, the transaction closed. Following the closing of the transaction, the shares have been cancelled and returned to the status of authorized but unissued shares of common stock.

On July 17, 2020 we entered into a consulting engagement memorandum with an unrelated third party for the consultant’s guidance and expertise in identifying business opportunities, partners and other skilled consultants in the People’s Republic of China and/or other territories of Asia. As compensation for the services we issued this individual 12,423 shares of our common stock valued at $62,115. The recipient was a non-U.S. person.

On July 17, 2020 we entered into a consulting engagement memorandum with an unrelated third party for the consultant’s guidance and expertise in identifying potential financiers, partners and other skilled consultants in the People’s Republic of China and/or other territories of Asia. As compensation for the services we issued this individual 6,212 shares of our common stock valued at $31,060. The recipient was a non-U.S. person.

On September 30, 2020 the Company entered into an Asset Purchase Agreement with Xten, a common control entity, pursuant to which it acquired a portfolio of 29 U.S. and international patents and patent applications in the areas of devices and technologies for aerosolizing certain remedies and pharmaceutical preparations, as well as the solutions and preparation for inhaled delivery. As consideration for the acquisition, the Company issued Xten common stock purchase warrants exercisable for an aggregate of 21,000,000 shares of its common stock at an exercise price of $5.31 per share (the “Warrants”), consisting of (i) a Series A Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2023 and expiring on September 30, 2026, (ii) a Series B Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2026 and expiring on September 30, 2029, and (iii) a Series C Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2029 and expiring on September 30, 2032. The Company has the right to accelerate or extend the exercise period of each series of Warrants in its discretion. In addition, the exercise period of each series of Warrants automatically accelerates in the event of a “change of control” (as defined in the Warrants) prior to such series of Warrants becoming exercisable by its respective terms. The Asset Purchase Agreement contained customary indemnification provisions.The Warrants were valued at $191,594 based on the carrying value of the assets acquired.

NOTE 4 – RELATED PARTY TRANSACTIONS

In the first quarter ofEarly in 2020 the Company borrowed an additional $2,500 from Xten, a common control entity. On June 24, 2020 the Company paid $250,000 to reduce the debt to Xten, a common control entity. The balance outstanding at March 31,September 30, 2020 due Xten is $705,544.$455,544. The loan is unsecured, noninterest bearing and due on demand. No additional borrowing or repayment occurred in the third quarter.

We maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease the premises from 5550 Nicollet, LLC, a company owned by Mr. Chong.Chong, the Company’s Chief Executive Officer. In December 2019 we entered into a month-to-month lease that began January 1, 2020 with a monthly rental rate of $775. We have rented the space continuously through the first nine months of 2020. As of March 31,September 30, 2020, $7,750there is no outstanding balance for rent due to 5550 Nicollet, LLC.

In the first quarternine months of 2020, pursuant to a verbalsigned agreement, Xten provided research and development related expertise and services specific to the HNB technologies, devices and intellectual property. Xten billedCosts to the Company $130,456 inwere $427,788 for these research and development services during the first quarternine months of 2020. As of March 31,September 30, 2020, we owe$92,541 remains outstanding with $66,900 as an accrued expense and $25,641 as an account payable to this related party.

On September 30, 2020 the Company entered into an Asset Purchase Agreement with Xten, $112,142a common control entity, pursuant to which it acquired a portfolio of 29 U.S. and international patents and patent applications in the areas of devices and technologies for these services.aerosolizing certain remedies and pharmaceutical preparations, as well as the solutions and preparation for inhaled delivery. As consideration for the acquisition, the Company issued Xten the Warrants, including (i) a Series A Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2023 and expiring on September 30, 2026, (ii) a Series B Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2026 and expiring on September 30, 2029, and (iii) a Series C Common Stock Purchase Warrant exercisable for 7,000,000 shares of common stock commencing on September 30, 2029 and expiring on September 30, 2032. The Company has the right to accelerate or extend the exercise period of each series of Warrants in its discretion. In addition, the exercise period of each series of Warrants automatically accelerates in the event of a “change of control” (as defined in the Warrants) prior to such series of Warrants becoming exercisable by its respective terms. The Asset Purchase Agreement contained customary indemnification provisions. The assets have been accounted for at a carrying value of $191,594.

In the third quarter of 2020 the Company procured the services of Plexus Corporation, a common control entity, to create, design and deliver an online interactive presentation in English and Simplified Chinese for use in presentations to potential investors. Cost to the Company for this service was $5,500. At September 30, 2020 this balance accounted for in accrued expenses is outstanding.

On September 30, 2020 the Company entered into an Other Assets Purchase Agreement with Xten, a common control entity, to purchase certain assets including: multiple pieces of laboratory and workshop equipment; custom built plume and inhalation testing machine; computers, monitors and accessories; prepaid rent; and, laboratory/workshop supplies, for a purchase price of $268,358, The Other Asset Purchase Agreement also contained customary indemnification provisions. The purchase price was tendered to Xten in November 2020.

NOTE 5 – NOTE PAYABLE

As of March 31, 2020,On May 20, 2013 the Company no longer has theissued a $50,000 note payable that was originally issued May 30, 2013.to an unrelated third party. On March 6, 2020, this note and accrued unpaid interest, upon agreement by the noteholder, were fully satisfied through the conversion of the principal and accrued interest totalingtotalling $76,917 into 15,384 common shares orof our stock at a conversion rate of $5.00 per share. No gain or loss was recognized from the conversion of thethis note to the Company'sCompany’s common stock.

NOTE 6 – CONVERTIBLE NOTE

As of March 31, 2020,On July 14, 2014 the Company no longer has theissued a $40,000 convertible note to an unrelated third party that was originally issued July 14, 2014 as part of the acquisition of VapAria Solutions. This convertible note matured on December 31, 2019 and on2019. In February 10, 2020 we fully satisfied any and all obligations of the convertible note through repayment of the principal and accrued interest of $62,323.$62,323

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Relating to the December 2013 License Agreement with Xten, a common control entity, beginning in the calendar year in which the first licensed products or licensed services takes place, but not prior to January 1, 2015, the Company is required to pay to Chong Corporation, a related entity, a 3% royalty for revenues with a $50,000 annual minimum royalty commitment.

The December 31, 2013 License Agreement with Xten also requires us to pay for the costs associated with maintaining the patent applications and patents licensed to us. For the three months ended March 31, 2020 and 2019 Xten did not report that it incurred any costs associated with this December 2013 License Agreement.

NOTE8 – SUBSEQUENT EVENTS

On April 13,October 1, 2020 in line with the Company’s 2019 Equity Compensation Plan, 250,000 non-qualified stock options were granted to its management as additional compensation for services provided. These options were fully vested upon grant and have an exercise price of $5.31 per share.

On November 18, 2020 we entered into a consulting engagement memorandum with an unrelated third party pursuant to which we engaged this party to identify key Asian resources for our company. As compensation for the services we issued this individual 12,423sold 28,572 shares of our common stock valued at $62,115. The recipient wasto an accredited investor in a non-U.S. personprivate transaction and the issuance was exempt from registration under the Securities Act in reliance on an exemption provided by Regulation S promulgated thereunder.

On April 16, 2020 we entered into a consulting engagement memorandum and agreement with an unrelated third party and engaged this individual to provide certain services to us in connection with the further developmentreceived proceeds of certain of our patents. As compensation, upon execution, we issued this individual 10,000 shares of our common stock valued at $50,000$200,000. We did not pay any commissions or finders’ fees and are obligated to issue him an additional 10,000 shares at such time as additional patents are issued. The recipient was a non-U.S. person andusing the issuance was exempt from registration under the Securities Act in reliance on an exemption provided by Regulation S promulgated thereunder.

On April 27, 2020 we were informed that the United States Patent and Trademark Office (USPTO) has issued a Notice of Allowability in connection with our Heat-not-Burn Device and Method patent application, filed June 28, 2018. A notice of allowance means that the prosecution of the merits is now closed and a United States Letters Patent will issue on or before July 22, 2020.proceeds for working capital.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations for the three and nine months ended March 31,September 30, 2020 and 2019 should be read in conjunction with the unaudited financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward looking statements as a result of a number of factors, including those set forth under “Cautionary Statements Regarding Forward-Looking Information” appearing earlier in this report, Part I. Item 1A. Risk Factors appearing in our Annual Report on Form2019 10-K, for the year ended December 31, 2019, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.

Impact of COVID-19 on the Company

In the first nine months of 2020 the effects of the COVID-19 pandemic were felt by the Company. While the duration and full impact of the pandemic is unknown at this time, we expect that the pandemic will continue to adversely impact CQENS in several ways. Our business model is dependent upon our ability to enter into strategic partnerships in the future, including alliances with consumer product companies, to enhance and accelerate the development and commercialization of our proposed products. We will also be dependent upon third party manufacturers to produce our proposed products, as well as third party marketing and distribution companies. We believe that our business opportunities are international in nature and include potential partnerships in the UK, the EU and Asia, including the People’s Republic of China. The worldwide pandemic caused by COVID-19 have caused certain of   these opportunities to be delayed. Should the pandemic continue and /or be prolonged into 2021 certain of these opportunities might be limited or lost. We also need to raise additional working capital to provide sufficient funding to bring our proposed products to market. The impact of COVID-19 on the capital markets will make it more difficult for small, pre-revenue companies such as ours to access capital. We will continue to assess the impact of the COVID-19 pandemic on our company, however, at this time we are unable to predict all possible impacts on our company, our operations and our prospects.

Overview and plan of operations

We are a technology company involved in the development of proprietary and patentable methods for heating plant-based consumable formulations leading to the production of aerosols for safe, effective and efficient inhalation of plant constituents. The technology, often called Heat Not Burn (“HNB”) accomplishes this at high temperatures,by heating tobacco to produce an aerosol, but without the accompanying constituents of combustion. Our technology differs from other such technologies currently on the market because the CQENS systemSystem is a high-temperature, non-combustion system, unlike the low-temp, non-combustion systems available today. Current applications of the technology include tobacco, hemp-CBD and cannabis where non-combusting methods of preparation for inhalation are believed to be safer more effective and more efficacious.effective.

On December 31, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Xten, a related party, pursuant to which we acquired the following assets (the “Assets”):

The purchase price of the Assets was:

certain intellectual property and other assets. Following the closing of the Asset Purchase Agreement, our business and operations are now focused on commercializing the CQENS System, a patent-pending method of inductively heating tobacco and other substances and ingredients that support reduced risk as a reduced risk product (RRP), profile given that the technology prevents combustion and prevents its consumers from inhaling the dangerous byproducts of combustion.

We believe that HNB technologies will be of great interest to the international tobacco industry and the growing hemp-CBD cannabis industries. HNBs represent the latest in tobacco and inhalable technologies, and likely to supplant the electronic vapor system (EVS) technologies including e-cigarettes and electronic nicotine delivery systems. We believe HNBs, if properly designed, will avoid many of the issues that have proved troublesome for EVS’ including thermal decomposition, heating irregularities and the formation and presence of high levels of acrolein and formaldehyde. In the fall of 2019 Philip Morris International introduced its HNB product to U.S. markets. This product, which was sold in more than 40 countries before entering U.S. markets, like other HNB technologies, is a device that heats a tobacco stick, rather than burning it, and testing supports claims that the product can potentially reduce the number of noxious chemicals found in cigarette smoke by 95%.

The CQENS System is supported by three patent applications, the most recent of these, a Patent Cooperation Treaty (PCT) patent application, was filed by Xten in January 2019. In May 2019 Xten was informed that the International Searching Authority (ISA) had completed its review of the PCT patent application and issued the International Search Report and Written Opinion relative to that application. The ISA found that 34 of the application’s 55 claims were patentable and the remaining 21 would also be patentable if successfully amended. On September 5, 2019, Xten filed a Chapter II Demand and Article 34 Amendments with the International Bureau of the World International Property Office (WIPO) as a part of what we expect will be a successful effort to obtain a favorable opinion for all of its claims. We have succeeded to these rights with our purchase of the Assets as described earlier in this report.

We raised $1,200,000During 2020 we have continued our efforts begun in capital2019 following the closing of the Asset Purchase Agreement, including:

• On July 24, 2020 we entered into an Amended and Restated Operating Agreement (the “Operating Agreement”) of Leap Technology LLC (“Leap Technology”) with Zong Group Holdings LLC (“Zong”) and Leap Management LLC (“LM”). Under the terms of the Operating Agreement and the related Contribution Agreement dated July 24, 2020 (the “Contribution Agreement”), we acquired a 55% membership interest in Leap Technology in exchange for the contribution of an exclusive, royalty-free license (the “License Agreement”) for the use in the first quarterAsia Pacific countries listed in the Contribution Agreement of 2020 through the salecertain of our common stockintellectual property, patents pending and patents related to our heated tobacco product technology. It is expected that Leap Technology will form additional business entities to commercialize our propriety technology in those Asia Pacific countries which include China, India, Indonesia, Vietnam, the Philippines, Thailand, Malaysia, Singapore and Hong Kong. The goal of the joint venture is the market development of the Company’s intellectual property in the Asia Pacific region together with other initiatives and the formation business relationships with tobacco companies who operate in the Asia Pacific region;

• On August 25, 2020, we were issued United States Patent 10,750,787 by the U.S. Patent and Trademark Office for a non-U.S. PersonHeat-not-Burn Device and Method. The patent covers the technology behind the proprietary CQENS System;

• On September 4, 2020, we were informed by our intellectual property counsel that it had received a favorable International Preliminary Report on Patentability that was issued as a result of its filing of a Chapter II Demand and Article 34 Amendments with the International Bureau of the World International Property Office (WIPO) on September 5, 2019. The report was issued in a private transaction. We may seekconnection with the PCT patent application filed by on January 3, 2019 for our Heat-Not-Burn Device and Method. The examiner’s conclusion was that 84 of the 91 claims were considered to raise additional capital through future public or private debt or equity offerings of our securities, although we dobe “patentable,” and while the PCT does not have any commitments from any third parties to provide any capital to us. Whileissue patents, based upon management’s experience we believe that a preliminary, favorable examination does provide insight as to how individual country examinations would likely proceed;

• On September 30, 2020 we entered into an Asset Purchase Agreement (the “IP Asset Purchase Agreement”) with Xten pursuant to which we acquired a portfolio of 29 U.S. and international patents and patent applications in the exclusive rightsareas of devices and technologies for aerosolizing certain remedies and pharmaceutical preparations, as well as the solutions and preparation for inhaled delivery; and

• On September 30, 2020 we also entered into a second Asset Purchase Agreement (the “Other Assets Asset Purchase Agreement”) with Xten pursuant to which we acquired certain assets including, but not limited to, a custom built plume and inhalation testing machine, oscilloscope with probe, multiple pieces of laboratory and workshop equipment, computers, monitors and accessories.

We believe that the proprietary technology on whichactions and transaction we have undertaken in 2019 and 2020 will facilitate and accelerate the commercialization of our business is predicated could provide us with a significant competitive advantage if we can bring one or more products to market, our ability to accomplish thatIP assets in the near term is dependent on a successful prototype and positive pre-clinical assessments ofwell into the prototype. Given the current lack of a public market for our common stock, our status as a pre-clinical stage company and the difficulties small companies experience in accessing the capital markets, we expect to encounter difficulties in pursuing public or private capital raises. We may also seek to minimize our capital needs by securing partnerships or joint ventures with well capitalized companies in the pharmaceutical or OTC consumer products industries. Until such time as we are able to raise all or a portion of the necessary capital, our ability to continue to implement our business plan will be in jeopardy.future.

Going concern

For the first quarternine months of 2020 we reported a net loss of $273,000$1,046,031 and net cash used in operations of $155,457$703,143 compared to a net loss of $29,157$74,606 and net cash used in operations of $15,520$48,037 for the first quarternine months of 2019. At March 31,September 30, 2020, we had cash on hand of $1,007,326$1,255,783 and an accumulated deficit of $2,575,050.$3,348,081. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2019 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our minimal cash and no source of revenues which may not be sufficient to cover our operating costs. These factors, among others, despite the cash and cash equivalent amount on hand at the end of this quarter, raise substantial doubt about our ability to continue as a going concern and pay our obligations as they become due over the next year. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise additional capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.

Results of operations

We did not generate any revenues from our operations in either the third quarter or the first quarternine months of 2020 or the first quarter of 2019. Our total operating expenses for the firstthird quarter of 2020 and the nine months then ended increased 907%1942.4% and 1427.1%, respectively, over those reported in the first quarter of 2019. In addition, duringcomparable 2019 periods. General and administrative expenses increased 2097.5% in the firstthird quarter of 2020 our Board awarded a onetime cash bonusfrom the comparable period in 2019 and showed an overall increase of $25,000 each1180.2% for the first nine months from the same period in 2019 due mainly to ourthe compensation payments to the Company’s management, who presently serve without compensation. At March 31, 2020purchase of the total of $100,000 cash bonus, an aggregate of $75,000 has been paidnon-capital equipment and the balance has been accrued. We have agreed to pay these remaining amounts upon the request of the recipients.

lab supplies and some slight increases in amortization and office expenses.

Research and development expenses in the firstthird quarter of 2020 were $130,456$187,958 as we work on variant prototypes comparatively, we had no research and development expenses in this same period in 2019. For the first nine months in 2020 our research and development expenses were $458,204 against no research and development in the first nine months of 2019. Professional fees increased 48% in723% for the firstthird quarter of 2020, compared to the firstthird quarter of 2019. The first nine months of 2020 showed an increase in professional fees of 567.4% over the same 2019 which istimeframe. These increases are attributable to consulting service fees and increased legal costs.

We expect that our operating expenses will increase as we continue to develop our business and we devote additional resources towards promoting that growth, most notably reflected in anticipated increases in research and development, general overhead, salaries for personnel and technical resources, as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability to continue to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working capital. As the availability of this capital is unknown, we are unable to quantify at this time the expected increases in operating expenses in future periods.

Liquidity and capital resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of March 31,September 30, 2020, we had $1,007,326$1,255,783 in cash and cash equivalents and a working capital surplus of $152,344 as$439,757 compared to $1,298 in cash and cash equivalents and a working capital deficit of $856,012 at December 31, 2019. Our current liabilities decreased $496increased only $27,103 from December 31, 2019, reflecting the retirement of debt and associated interest payable despite a significant increase in our accounts payable and in our accrued expenses, including accounts payable and accrued expenses due a related party as described in Note 4 to the compensation payable.financial statements appearing earlier in this report. Our source of operating capital in the first quarternine months of 2020 came from the sale of 248,448496,898 shares of our commonscommon stock raising $1,200,000$2,400,000 in capital along with additional borrowing from a related party of $2,500 compared to the same period in 2019 where our sole source of operating capital came from additional borrowings from a related party which loaned us an additional $14,500.$54,000.

The ability of the Company to continue as a going concern is dependent upon the Company obtaining adequate capital to fund operating losses until it becomes profitable. As the company is not generating revenues, continued activities and expenditures to bring product(s) to market as soon as we are able is important. Management believes the currently available funding will be insufficient to finance the Company’s operations for a year from the date of these financial statements and to satisfy our obligations as they become due.

In FebruaryDuring the first nine months of 2020 the $40,000, principalwe have retired approximately $340,000 of debt, including a net amount convertible note was fully satisfied through the repayment of both the principal and accrued unpaid interest totaling $62,323. In March 2020, the $50,000, principal amount, note payable was fully satisfied when both the principal and accrued unpaid interest totaling $76,917 were converted into 15,384 shares of our common stock at $5.00 per share. We owe$247,500 owed to a related party, $705,544through repayments or conversion into equity. At September 30, 2020 the outstanding amount we owe the related party is $455,544 which is due on demand.

While we raised $1,200,000$2,400,000 from the sale of our securities during the first quarternine months of 2020, plus an additional $200,000 in November 2020, we still will need to raise $1,000,000$2,000,000 to $2,000,000$3,000,000 in additional capital during the next 12 months. As we do not have any firm commitments for all or any portion of this necessary capital, there are no assurances we will have sufficient funds to fund our operating expenses and continued development of our products and to satisfy our obligations as they become due over the next 12 months. In that event, our ability to continue as a going concern is in jeopardy.

Summary of cash flows